In my last article, I discussed the possibilities of Yellen’s Friday speech at Jackson Hole. I was accurate in my expectation of what her speech would be on as the main point of her speech was to defend the regulations put in place since the last financial crisis. This was the speech of someone who is leaving their position. There’s no need to warn people about regulations being relaxed if she is staying at the helm. As I have said, it’s tough to say whether President Trump will pick a dove or a hawk, but the one thing that is certain is the Fed chair won’t be in favor of regulations.
The list below shows the percent chances of each person being the next Fed chair in February 2018. This list is from the Predict It betting market. I consider it a very weird list because the top 2 people on the list seem like unlikely to take the job. Janet Yellen has a 25% chance of getting picked. Even though President Trump complimented her recently, it would be a PR nightmare to select her after he criticized her on the campaign trail. There’s also the philosophical difference on regulations which is quite dramatic. Gary Cohn is one of the most trusted people in President Trump’s cabinet, but it looks like Cohn won’t be picked either because former Fed governor Mark Olson told Cohn not to accept the Fed job it the President offers it to him. Olson’s reasoning is that Cohn doesn’t have any monetary policy experience. He referenced G. William Miller’s 1-year term as Fed chair under Carter not going well as evidence that picking an inexperienced chair isn’t a great idea.
President Trump may not care about whether the new Fed chair has specific monetary policy experience, but his hand will be forced if Cohn doesn’t accept the offer. To summarize, Cohn doesn’t have a clear path to the nomination because he might not want the job because he isn’t specifically qualified. There was also reports that Cohn almost resigned as Director of the National Economic Council after the events in Charlottesville. This further drops his stock. This explains why no one has above a 50% chance of getting picked. This is a big risk facing the market because uncertainty obviously can lead to a bad outcome. A bad outcome for stocks would be President Trump picking a hawk who isn’t concerned about how stocks react to monetary policy. I don’t think that would be a bad choice for the country and economy, but stocks would fall. Most economists who aren’t of the exact mold of Bernanke and Yellen probably won’t care about stocks as much. They have babied the market, making sure nothing spooks it.
